Indian budget faces tough balancing act: economists

MUMBAI, July 5, 2009 (AFP) – India’s new Congress-led government will have to balance conflicting objectives of spurring growth and reining in a soaring fiscal deficit when it presents its first budget on Monday. Economists and analysts predict the budget will focus on regulatory and structural reform to stimulate growth, rather than announcing large government stimulus expenditure.

“The government’s hands are tied given the fiscal constraints. They will look at small-ticket projects, focusing on agriculture, infrastructure and telecoms,” said Siddhartha Sanyal, an economist with Edelweiss Securities.

“The government’s ability to provide any further dose of large and generalised stimulus for the economy will be limited in this budget.”

India’s fiscal deficit has risen sharply in recent years on loan waivers for poor farmers, subsidies and stimulus packages to boost the economy.

The Congress party in its pre-election interim budget in February sharply increased defence spending following the Islamist extremist attacks on Mumbai last November.

The rise means the fiscal deficit would have ballooned to 6.2 percent of gross domestic product for the fiscal year to March 2009 — more tha